Only time will tell if Peloton Interactive (PTON) is experiencing a turn in its financial fortune or if recent positivity is nothing more than fading hope. The hardware and subscription-based fitness services significantly declined post-pandemic, with decreased revenues in the last nine fiscal quarters. This caused the stock to shed roughly 96% of the share price in the past three years. However, there has been a recent positive shift, with sales rising for the first time since 2021, fueling investors’ hopes for the company’s recovery.
This change was primarily driven by selling fewer connected fitness machines and more subscriptions, especially with the addition of subscriptions for buyers of equipment in the second market. Peloton’s latest quarterly sales were marginally higher than the previous year at $643.6 million. Yet, investors positively received the news, causing Peloton’s stock to surge 51% over the past few trading days. This signals a potentially optimistic turn for the company, but long-term investors may want further confirmation of a sustained turn in fundamentals before buying the hype.
Peloton Cutting Costs
Peloton Interactive is known for its integrated fitness platform, which offers a range of products, including the Peloton Bike, Bike+, Tread, Tread+, Guide, and Row. The company sells through e-commerce, inside sales, traditional retail outlets, and third-party retailers.
The company is under the interim leadership of two board members, with a heavy focus on aggressive cost cutting. This approach is seen as a placeholder for a more sustainable long-term strategy. Such extreme measures are essential due to the inflated expenses accumulated during the company’s boom during the pandemic.
Despite Q2’s positive spin, the company struggles with declining subscriber numbers. It predicts a 9% drop in subscriptions for its connected fitness product and a 3% decline in app subscriptions by fiscal 2025. Equipment sales, crucial for connected fitness subscription revenue, continue to decline. Further, the app subscription business holds a higher churn rate, losing 26% of its subscribers last year. The company aims to enhance the subscriber experience to reduce churn but acknowledges that the impact of these efforts is uncertain.
Peloton’s Recent Financial Results & Outlook
The company recently reported results for fiscal Q4 of 2024. Revenue of $643.6 million exceeded expectations of $630.48 million. This figure included $212.1 million from connected fitness products and $431.4 million from subscriptions. Gross profit amounted to $312.0 million, providing a gross margin of 48.5%, slightly above the projected 48%. Operating expenses decreased to $375.3 million, significantly down from the previous year’s $426.8 million. Earnings per share of -$0.08 exceeded the analysts’ estimates of -$0.17. The quarter ended with $697.6 million in unrestricted cash and cash equivalents and a free cash flow of $26.0 million.
Following fourth-quarter results, PTON management has offered forward guidance for Q1 FY25, projecting an increase in the gross margin and a significant year-over-year improvement in adjusted EBITDA due to cost reduction and lower sales & marketing expenses. However, total revenue and paid subscriptions (connected fitness and app) are expected to decrease. The full-year FY25 guidance reflects a potential decline in hardware sales and a modest increase in the average net monthly paid connected fitness churn.
What Is the Price Target for PTON Stock?
The stock has been on a sustained and volatile downward trend, sporting a beta of 2.89 while it has declined from a pandemic-high share price of $165 to the recent $4 range. It trades near the middle of its 52-week price range of $2.70 – $7.24 and shows positive price momentum, trading above its 20-day (3.50) and 50-day (3.50) moving averages. It trades at a discount, with a P/S ratio of 0.65x, sitting well below the Leisure industry average of 1.88x.
Analysts following the company have taken a cautious stance on the stock. For instance, BofA analyst Curtis Nagle recently reiterated a Sell rating with a price target of $3.25 on the shares. He noted the downward adjustment to guidance for revenue and subscriber growth.
Peloton Interactive is rated a Hold overall, based on the recommendations and price targets recently issued by 17 analysts. The average price target for PTON stock is $4.53, representing a potential -6.40% change from current levels.
Peloton in Summary
Peloton has seen its first increase in sales since 2021, fueling investor hope in the company’s resurgence. Yet, the company’s future outlook includes uncertainty about reducing subscriber churn while pointing to more declines in subscriptions and hardware sales. Despite recent positive developments, investors may want to exercise caution and await further confirmation of a sustained improvement in the company’s fundamentals.
